Insurance Consulting Archives

Adapting with Confidence: Preparing for What’s Next in Electronic Filing

Electronic state filings are entering a new chapter. As the NAIC rolls out its SERFF modernization initiative, insurance carriers, MGAs, and compliance professionals are adapting to a new, cloud-based system. This shift will change how filings are submitted, reviewed, and reported.

But the biggest challenge isn’t insurance state filings software or the technology itself – it’s how well organizations align around it.

Readiness Starts Inside the Organization

The most successful transitions won’t be driven by systems alone. They’ll come from organizations that are organized, communicative, and confident. That means preparing your people, reviewing your processes, and confirming that your technology partners are ready to support a dual-platform environment for submitting and tracking state filings.

The ability to operate confidently across both the legacy and modernized SERFF platforms is now a requirement, not a luxury. Modernization is no longer a theoretical concept; it is moving into active implementation. Therefore, readiness must shift from planning to execution.

Filing teams need to define their responsibilities, workflows must reflect current activity, and systems must be flexible enough to connect and scale. It is not enough to prepare once and wait. Organizations must treat readiness as an ongoing capability.

What to Expect During the Transition

Even the best internal readiness plan will face external challenges as states begin utilizing the new platform at different times. This is especially important for multi-state filers. As each state adopts the new platform based upon its readiness, filers will need to manage submissions across two environments. Tracking, status visibility, and reporting will all become more complex.

Compliance and product teams that rely on aggregated dashboards, reports, and automation tools will face new configuration demands, and coordination with IT will be more important than ever.

Preparing for What’s Next

Preparation today ensures confidence tomorrow. There are six essential steps every organization can take today to strengthen readiness and prepare for what is to come:

Stay informed – Follow updates from the NAIC and your state liaisons.
Train early – Familiarize teams with new workflows, terminology, and insurance state filings software.
Map your footprint – Take inventory of the states and lines your company files in and match them to the NAIC early adopter list.
Audit your data flows – Know where filing data connects to internal systems.
Plan for coexistence – Expect a period of overlap between platforms
Engage your vendors – Confirm that partner systems, like StateFilings.com, are ready for both environments.

Managing the Transition: Options for Every Organization

Each organization will need to determine the approach to managing the SERFF transition that best fits its structure, capacity, and goals. The chart below outlines common approaches and their implications.

Every organization’s journey will look different. What matters is selecting a path that balances control, efficiency, and resource investment.

Choosing the Right Approach for Your Organization

Approach	Description	Best for	Considerations
Manual Management	Track filings separately in each SERFF system	Smaller teams or low-volume filers	High internal coordination required; prone to human error
Internal API Integration	Build internal tools to connect directly to both SERFF systems	Carriers with strong IT resources	Requires significant upfront investment and ongoing maintenance
Centralized Filing Desk	Designate internal team to manage all filings across systems	Organizations with multiple product lines	Needs clear ownership and training; benefits from process consistency
Managed Services	Outsource filing management to an experienced partner	Organizations looking to reduce internal workload	Relies on vendor expertise; requires strong communication
Vendor Platform	Use a system like StateFilings.com for unified filing and reporting	Carriers seeking automation, accuracy, and visibility	Offers scalable support, centralized tracking, and minimized IT effort

How StateFilings.com Bridges the Gap

Among these options, StateFilings.com from Perr&Knight stands out for its ability to unify both legacy and modernized SERFF environments into a single, seamless environment. This all-in-one insurance state filings software connects to both platforms, consolidates all filing activity and correspondence, and maintains a complete audit trail across systems. Centralization like this reduces manual work and improves visibility across jurisdictions.

Real-time filing data gives compliance and product teams instant and comprehensive insights without the need for data reassembly. Filing information flows smoothly into existing reporting tools and dashboards, while the system’s cloud-based architecture minimizes IT maintenance. As new states and lines of business transition, StateFilings.com scales right alongside them, ensuring your systems and processes stay aligned with regulatory change.

Supported by Perr&Knight’s experienced state filings professionals, StateFilings.com implementation is straightforward, and ongoing support is built into the platform.

Turning Readiness into Advantage

With the proper preparation and the right tools, modernization becomes more than a compliance requirement: it becomes an opportunity to improve efficiency, reduce risk, and strengthen outcomes. If your organization is preparing for SERFF modernization, now is the time to act.

Contact Perr&Knight’s StateFilings.com team to learn how we can help simplify your transition and ensure your readiness for what’s next.

Potential Impacts of the LA Fires on California’s Property Insurance Marketplace

by Mitchell Paden

The devastating Palisades, Eaton, and Hughes fires could go down in history as the most economically destructive disaster, with damage estimates reaching $250 billion or higher. The results of these changes will likely have a significant impact on the way P&C insurance is written in the state of California for years to come.

Our actuarial consulting experts have been following this event closely, as have many in the insurance industry. The situation is still fluid, and the potential ramifications of the fires on the California property insurance marketplace are too numerous to touch on in just one blog. This includes one of the biggest potential ramifications: the looming threat of California FAIR Plan assessments on insurers in the state for the first time since 1994 (stay tuned for an upcoming blog on that very topic!).

For now, we are focusing our thoughts on how the aftermath of the fires may converge with recent changes enacted by the California Department of Insurance regarding rate filings.

Wildfire Models Step into the Spotlight

The ink is barely dry on the recent rule changes allowing wildfire models to be used in California property rate filings. Though the implementation of the new rules has not even occurred yet (the California Department of Insurance website estimates they will be included in updated rate filing instructions at some point during the first quarter of 2025), companies are already beginning to strategize on the best path forward for achieving adequate rates.

Ironically, California did not formally approve the use of wildfire models until December 2024, mere weeks before the Los Angeles fires broke out. Prior to this, insurance companies could not use any models regarding potential wildfire losses in their rate filings. Instead, companies were required to show at least twenty years of catastrophe loss experience, that combined wildfire losses with many other catastrophe perils (e.g., severe storms), to support their catastrophe load without the ability to place more emphasis on recent years.

As wildfires in the state have grown in both frequency and intensity, scenarios based on loss experience for the previous two decades often underestimate the current risk. As such, companies have often felt this prevented them from filing what they viewed to be adequate rates. This is one of a variety of reasons so many carriers ceased writing new business in the state.

The new wildfire model rules formally approved in December give companies an option to help bridge the gap between historical ratios and present risk by allowing wildfire catastrophe models to be used in rate filings.

The use of these wildfire models does come with conditions, though. It requires companies to write additional business in the wildfire-prone areas that many carriers ceased writing and are currently being served by California’s FAIR Plan. Though some feel that the requirement to write more wildfire-prone exposure will keep companies from utilizing the models, the ability to file for a rate level more closely aligned with present day wildfire risk may outweigh the risks that come with the increased wildfire exposure for some companies.

Our team of actuarial consulting experts see a few different reasons that some may choose to take this route and accept the conditional requirements for wildfire model use in pursuit of adequate rates.

Rate Filing Data Evaluation Rules: California requires that the evaluation date of data in a filing be a traditional quarter-end (March 31, June 30, September 30, and December 31). Since the Los Angeles fires started the second week of the new year, insurance companies are unable to submit filings – or even begin assembling filings – that include these fire losses until at least April. Use of wildfire models would allow companies to replace all actual wildfire losses with modeled data that could be available sooner and provide a quicker path to submission.
Inclusion of Complete Wildfire Risk: As mentioned earlier, the use of the previously required historical ratios led to catastrophe provisions that were often understated relative to today’s catastrophe risk. The use of wildfire models would allow companies to do a filing now that can support a rate that recognizes a more complete picture of a company’s wildfire risk rather than waiting multiple years for the recent increased fire activity to gain more weight in the historical catastrophe ratios.
Subrogation Uncertainty: There have been multiple lawsuits filed claiming that the Eaton fire in Altadena, CA, was ignited by electrical equipment operated by Edison International and Southern California Edison. Under state law, utility companies, rather than insurance companies, are liable for damages if their equipment starts a wildfire. So, if Edison loses these lawsuits, much of the loss from that fire will need to be included net of subrogation recoveries from the utility company (or proceeds from the sale of subrogation rights). The same could be true for the other fires as the investigations continue into how they started. Wildfire models measure prospective risk rather than prior liability, allowing them to be used without having to potentially wait for legal liability to be determined (though the Department may want to make sure that all models have been adjusted to reflect company exposure after these recent fires).

Our expert actuaries are already fielding calls from insurance companies interested in shifting to wildfire model-based loss scenarios in their rate filings. In addition, wildfire model vendors are submitting models to the state as part of the Department’s Pre-application Required Information Determination (“PRID”) Procedure. Models that are approved via this process will help streamline the rate filing review since the model itself will already have been approved by California regulators.

For companies that are looking to get a head-start on a rate filing that utilizes wildfire models, we recommend conducting vendor research and selecting one of these approved models so that when California does formalize the instructions for submissions, companies will have modeled losses that can be quickly included in a rate filing and help expedite that filing’s review from the Department.

Net Cost of Reinsurance in Rate Filings Looms Large

Just days before 2025, California also approved new rules that allow for companies to include the net cost of reinsurance in rate filings for the first time. An industry average net cost of reinsurance could be calculated and included alongside other expenses allowable under Proposition 103.

Like wildfire models, use of the net cost of reinsurance comes with conditions in the form of increased writings in wildfire-prone areas. The increased exposure would also likely lead to increased reinsurance costs in proportion to the new risk and result in playing catch-up in times of rising reinsurance costs, which the fires will likely cause. This would be exacerbated if the industry average is not enough to fully represent company costs being paid for reinsurance.

The proposed rules do include an alternative approach that would allow companies to use their own reinsurance terms in the net cost of reinsurance calculations, but doing so would require the public disclosure of their reinsurance contracts, a condition that most companies feel they are not willing to meet.

Though there is no guarantee that the industry average will be enough to support each individual company, and there are many questions still to be answered on how it may impact proposed rates, including the net cost of reinsurance in a filing could help bridge the gap stemming from currently having no reinsurance consideration at all. The Department’s timeline estimates that the net cost of reinsurance will not be included in the rate filing instructions until the second quarter of 2025, so companies looking to maximize the tools available to file more adequate rates may wait until then to file rates using both the net cost of reinsurance and the wildfire models that upon which company reinsurance rates are often based.

The Importance of a Complete Rate Application

With so many significant changes to the allowable support in a rate filing, it is easy to forget that California also updated the rules about what constitutes a “complete” rate application. These new rules have been implemented into the rate filing instructions, so any company looking to move quickly in the aftermath of the fires should make sure that the filing package is as complete, accurate, and reconciled as possible. Public notice of filings will not take place until the state deems the application complete, so it is crucial that insurance companies carefully review all supporting documentation and model scenarios before submitting their filing to the state. Failure to do so will cause a delayed public notice date and a longer review of the submission.

The best way to speed along the process for everyone is to make the regulator’s job easier by ensuring that forms and supporting documentation are complete and ready to go, something that Perr&Knight routinely works together with the state to help achieve.

Contact the state filing experts at Perr&Knight today.

MGA Licensing: It’s Not What You Think

by Diane Karis

The term “Managing General Agent (MGA)” is used frequently in the insurance industry – but not always correctly. The roles of MGAs and agents are distinct in their licensing requirements and operational scope. Misclassification is more than just a semantic error. Applying for an MGA license without meeting the statutory requirements – including a signed contract containing the required minimum contract provisions – will cause your application to get rejected.

During our decades of providing insurance licensing support, we have seen many agents make this error—more due to misunderstanding than deliberate misrepresentation. This article outlines the true definition of the term and what is required to become licensed as an MGA.

What is the statutory definition of a Managing General Agent?

MGAs help insurers enter specialized markets without the associated overhead costs. They are granted significant authority by insurers to manage key operations such as underwriting, pricing, and claims settlement.

The NAIC Managing General Agents Model Act outlines an MGA’s statutory definition. According to the Act, an MGA is defined as any person who:

Manages all or part of the insurance business of an insurer (including the management of a separate division, department, or underwriting office).
Acts as an agent for such an insurer, known as a managing general agent, manager, or other similar term, who, with or without authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or more than five percent (5%) of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year.
Additionally, the MGA adjusts or pays claims in excess of $10,000 per claim or negotiates reinsurance on behalf of the insurer.

Obtaining an MGA license requires active underlying producer licenses related to the managed products, and the MGA must work with a carrier. If a producer is not yet associated with a carrier, they would not qualify to become licensed as an MGA.

MGA requirements differ by state

Once an agent determines if they meet the statutory definition of an MGA, they must understand each state’s requirements. Not all states offer MGA licensing, and there are different requirements in the jurisdictions that do.

While most states have adopted some version of the Model MGA Act, some may have state-specific statutes and regulations. Some states require MGA licensing for individuals and business entities, others only for business entities, and some only for individuals. For example, California does not offer an MGA license. Texas requires an MGA-specific test to obtain a license. Meanwhile, some states have no requirements beyond a producer license and a copy of a bond or E&O policy. There are also states that do not issue an MGA license, per se, but require MGAs to go through a registration, designation, or appointment process, which is similar to obtaining a license.

On a countrywide basis, approximately half of U.S. states issue actual MGA entity licenses, some have individual MGA licenses, some require the Designated Responsible Licensed Producer (DRLP) to hold an MGA license, and others require either an MGA-specific appointment or a copy of the MGA contract. MGA licensing also requires the participation of both the carrier and the MGA personnel.

It’s essential for MGAs to carefully navigate these requirements, as improper licensing can result in costly regulatory actions.

What’s the difference between a licensed producer and an MGA?

Both producers and MGAs work with insurance policies and serve as intermediaries in the insurance market.

Producers are licensed individuals or entities that sell (market), solicit, or negotiate insurance policies. They bridge the gap between insurers and policyholders. The term “producer” often encompasses both agents and brokers, reflecting their roles in policy distribution. Producers must pass examinations and meet ongoing education requirements to sell, solicit, or negotiate insurance policies. Becoming a licensed producer is generally less complex than MGA licensing.

The main differences between MGA and producer licensing lie in their level of authority and the complexity of their roles and responsibilities. MGAs have a broader range of responsibilities and a more intricate relationship with insurers, which is reflected in the mandated contract requirements between the MGA and the insurer and the volume of premiums generated. Producers focus primarily on distributing insurance products, leading to simpler licensing requirements.

For MGA licensing, an underlying P&C producer license is always the first step – and in some cases, it is the only step.

Becoming a licensed MGA

Many producers don’t need to become licensed as an MGA to keep performing the same professional duties. Producers who think they will qualify as an MGA should speak with their contracted carrier as an MGA relationship creates many additional responsibilities and reporting requirements for the carrier and the producer.

If you’re unsure of the type of license you need, our insurance licensing experts can help. The team at Perr&Knight will evaluate the requirements for your jurisdiction and the type of business you manage to determine the appropriate license for your business activities.

Contact Perr&Knight to learn more about our insurance licensing services and insurance state filings support solutions.

The Human Side of Operations

by Rob Berg

Insurance is an industry famously associated with numbers, statistics, and financial data. And yet, behind every policy, every claim, and every transaction, there are individuals – people just like you and me – who have feelings and emotions, ups and downs, good days and bad.

From the customers who purchase insurance policies to the employees who work for insurance companies, there is a human side to insurance company operations that is often minimized, unnecessarily subjecting the insurer to being poorly perceived. During decades of providing insurance operations consulting services, we have seen the upside of companies that recognize the power of their people – and the problems that arise when they don’t.

AGENTS ESTABLISH THE TONE OF CUSTOMER RELATIONSHIPS

Most obviously, insurance companies interact with their policyholders. When a customer decides to purchase a policy, they’re often making a significant financial commitment, and the insurance company is charged with ensuring the policy adequately secures a given risk at a fair price.

As the face of an insurance company, agents are often the first point of contact. They help customers understand their insurance options, explain the benefits and limitations of different policies, and answer any questions they may have. In many cases, insurance agents build long-term relationships with their clients, providing ongoing support and assistance as their insurance needs change over time.

However, in our age of increasing self-service and minimal human interaction, countermeasures must be taken to preserve the value of the relationship. During insurance operations and technology consulting engagements, we always caution our clients against letting automation usurp the very real value of a genuine human bond.

CLAIMS MANAGERS MUST BE SENSITIVE TO CUSTOMERS IN CRISIS

Of course, when a customer experiences loss or damage, they must file a claim to receive compensation. This is a particularly stressful and emotional time for the customer; it’s critically important that claims managers handle the claim with sensitivity and efficiency throughout the process. Claims adjusters who investigate the claim, determine the extent of the loss or damage, and work with the customer to reach a settlement are especially prone to being perceived as greedy and unsympathetic, which reflects poorly on a carrier brand.

Because adjusters are often best positioned to provide emotional support and guidance during this difficult time, they’re vulnerable to tacking too far to the analytical side of operations (often in service of their organization’s key performance indicators) while neglecting the claimant’s very real emotional and financial needs.

Adjusters take note: A failure to satisfy customers during the claims process can cause a tremendous hit to an insurer’s credibility and reputation. Take a random look at online reviews for practically any insurance company for proof.

SATISFIED STAFF MEMBERS PERFORM BETTER

Perhaps most importantly, because work consumes a substantial portion of our lives, insurance companies are increasingly responsible to their employees for their wellbeing. This means, in addition to providing a safe and healthy work environment, competitive compensation, and opportunities for professional advancement and development, that they actively support their autonomy (their ability to work without constant managerial intervention), competence (their feeling of being appropriately challenged by the work they do), and relatedness (the feeling that they’re adding value to something larger than themselves).

Unsurprisingly, according to Self-Determination Theory – a rigorously researched psychological construct for human motivation – autonomy, competence, and relatedness are three psychological needs that underpin employee engagement. Failure to respect those needs can result in poor morale, burnout, and high turnover.

SUPPORT THE COMMUNITIES WHERE YOU WRITE BUSINESS

Finally, insurance companies have a social responsibility to the communities they serve. This includes investing in programs and initiatives that promote safety and prevention, supporting local charities and organizations, and working to make insurance more accessible and affordable for everyone.

The human side of insurance company operations is often overlooked, but it merits greater attention as it is essential to the success of the industry. From the agents who sell insurance policies to the claims adjusters who help customers in their time of need, to the employees who work behind the scenes, and the communities they serve, the human element is what makes insurance companies truly effective and valuable to society. By recognizing and valuing the people who are involved in every aspect of insurance operations, we can build stronger, more resilient communities and a more compassionate and sustainable insurance industry.

Empower your teams to do their best work. Contact the insurance operations experts at Perr&Knight today to discuss how we can help.

Why Insurance Experts Should Lead Software Configuration

by Robert Cericola

by Bob Cericola and Mark Nawrath

Adding products to legacy software or to new software system implementations has long been a challenge for insurance companies. While developing your insurance products and filing with the Departments of Insurance (DOIs) in the states where you write business, concurrently defining product requirements and setting up testing can be a considerable challenge if you are working with software vendors who have limited experience managing the complexities of insurance.

Partnering with actuarial and insurance technology experts helps you sidestep common pitfalls so you can bring your new products to market faster. When decades of experience providing actuarial consulting services meet proven insurance technology implementation support expertise, you end up with more accurate, useful insurance product requirement definitions that streamline the path to success.

WHY GENERALIZED SOFTWARE VENDORS FALL SHORT

Though insurance software products are all based on unique, carrier-specific requirements, many share baseline similarities that general software vendors overlook. For example, instead of building systems with the perspective that “this is a uniform product with deviations and company-specific information to match 51 jurisdictional filings,” many software vendors inefficiently capture requirements and re-build the same software 51 times. This lack of expertise slows implementation timelines and exposes your organization to compliance violations – all of which drain the project’s budget and impede speed to market.

WORKING WITH INSURANCE EXPERTS MAKES A DIFFERENCE

Partnering with software vendors who offer “out of the box” software to meet insurance product requirements may seem like a good idea, but their lack of insurance expertise can easily cause misalignment of the system’s output with DOI filings, as well as a mismatch between the system’s back-end data and the real-world requirements of statistical reporting. When entering products into your company’s software, it makes more sense to work with experts who understand how product and workflow configuration impact compliance with statistical agents, rating bureaus and DOIs.

At Perr&Knight, we have established a proven process for defining requirements that is efficient, scalable and meets compliance standards for all 51 U.S. jurisdictions. Our subject matter experts possess the domain knowledge to expedite the configuration, testing and maintenance of carrier-specific insurance products for all rating, underwriting and policy administration systems.

END-TO-END DEVELOPMENT AND IMPLEMENTATION SUPPORT

The real economies and efficiencies in insurance product development occur when partnering with seasoned insurance experts from the outset. At Perr&Knight, our decades of actuarial consulting services experience inform our insurance product requirements definition, testing and maintenance solutions. Our StateFilings.com and BureauMonitor solutions are designed to integrate seamlessly with your existing software, empowering you with access to circulars, publications and carrier-defined workflows to initiate, monitor and archive DOI filings in a single repository.

BEGIN WITH THE END IN MIND

Due to the complexity of insurance products, software requirements must emulate the insurance-specific product requirements from the start. Inaccuracies in product requirements and limitations in testing are common problems that plague companies partnering with vendors that lack insurance experience. Even more serious are the risks that quickly arise from an absence of comprehensive requirements that align with compliance mandates.

Insurance technology experts like those at Perr&Knight can bring spiraling software implementation projects back under control, even if your company has involved outside vendors for development or implementation. However, partnering with Perr&Knight from the start of product ideation and software implementation planning ensures you achieve the best possible economies of time and scale. Because our teams work with internal peers to efficiently develop requirements from the outset, and partner with our clients to define their product requirements to advance software implementations, our clients waste less time and resources moving their software implementation project forward and retroactively solving compliance and reporting issues.

CONTACT PERR&KNIGHT TO START THE CONVERSATION

Our insurance technology consulting department is the fastest-growing division of Perr&Knight. This is because carriers, program administrators and Insurtechs recognize the value of working with insurance experts for insurance product requirements definition and testing. Our technology team partners with our actuarial consulting services team to define insurance product requirements documents that truly match software requirements. The result is peace of mind that your implementation process will stay on track to launch your products quickly and begin writing business as soon as possible.

See how our experienced insurance technology consultants can streamline your new product integration. Contact Perr&Knight today.

Six Ways Experts Smooth the Transition to a New Policy Admin System

by Scott Whitaker

by Scott Whitaker and Bob Cericola

An aging policy administration system may prohibit your organization from reaching its full potential. Functionality limitations, the inability of your system to keep up with new products and terminated support for older systems all stifle productivity and may force your teams to rely on complicated workarounds that fail to hold up against regulatory scrutiny.

Switching to a new policyholder system creates opportunities to elevate efficiency, improve accuracy, and increase profitability. However, failure to adequately prepare may inversely lead to problems such as inaccurate ratings, incorrect forms or versions of forms, delays in implementation, rework and staff frustration.

Unfortunately, your system vendor’s implementation team may only get you so far. Yes, they possess deep technical expertise and know the software inside and out, but they often lack the depth of knowledge on insurance-related specifics and regulatory requirements that can cause trouble in the future.

Instead, consulting with experienced insurance technology and compliance experts helps your organization sidestep the common pitfalls that delay launch and cause budgets to be exceeded.

At Perr&Knight, we have developed robust operations and technology consulting and product design departments to help insurance companies manage digital transformation more smoothly. Here’s how we help our clients successfully transition to a new policy admin platform.

Clarify system requirements documents

A clear understanding and comprehensive documentation of your filings and implementation rules enables us to develop a plan for the appropriate configuration for your new system or to conduct an internal audit.

The complexity of defining requirements and upfront configurations varies greatly depending on whether you use a rating bureau program, an independent/proprietary program, or a mixture of both (which is common for some commercial programs). Clear and complete documentation defines the impact of forms, rates, and rules to your new product, ensuring the new system functions correctly for your organization.

A precise requirements document means everyone can operate from a shared roadmap. Our insurance technology consulting experts put together a comprehensive requirements document, surfacing and addressing any gaps in the process. The more information we have upfront, the better equipped we are to help you succeed.

Vendor selection consulting

Determining which platform best suits your needs is not always straightforward. Unfortunately, different solutions do not offer apples-to-apples comparisons, leaving you to parse through the details of various platforms to determine if they will be suitable to handle your requirements. What you don’t know that you don’t know may reveal itself after you have selected a vendor and implementation is well underway.

Consulting with insurance technology specialists before deciding on a vendor provides peace of mind. We dig into the details on your behalf, asking vendors pointed questions about your unique business requirements to ensure the proposed solution delivers the highest ROI.

Correct configuration of the new platform

This sounds like a given, but insurance companies often fall into this trap. Third-party vendors hired to manage the transition often lack deep experience in regulatory compliance. Because every state has subtle but important differences in reporting requirements, working with experienced insurance technology consultants ensures your new system is configured to meet compliance standards in every jurisdiction your organization does business.

Too many companies begin implementation and are confronted with a harsh wake-up call when the output is not what they expected from their new policy admin system. But front-end configuration drives the back-end data sets. Therefore, when configuring your new system, we consider the regulatory compliance demands required on the back end. At Perr&Knight, we have extensive forms, rate, rule, and regulatory compliance knowledge and the technical expertise to ensure your output is accurate.

Rating bureau data extracts that are mismatched with expectations are one of the signs of a problem with the new system. Unfortunately, we have seen these errors take insurance companies by surprise when suddenly facing a complaint, data call, or other regulatory inquiry. Of course, reactively remedying misalignment is always possible and often increases costs and delays implementation. Being proactive is preferable, more economical, and allows for a smoother and more timely implementation.

Make sure data is compliant before migrating to the new system

The data you input into your new platform has significant downstream implications. Data input into the policy system feeds forms, claims, statistical reporting, and so on. Inaccuracies in your input can quickly cause data drift that will negatively impact reporting, exposing your organization to increased regulatory attention, especially if the state(s) where you operate issue a data call or request for more information.

Too many companies shift their data over to a new platform without taking the time to determine whether their data is still “good quality.” Taking the time to make sure your input is compliant before migration saves the expensive time drain of trying to clean up data after the transition. Our insurance data specialists can conduct a full audit of your data to evaluate compliance before migrating to your new system.

Schedule a mock market conduct exam

With so many variables in play, a current assessment ensures your existing policy admin system and data are correct and ready for your new system. As part of our Compliance Operations Assessment & Training (COAT) services, Perr&Knight’s compliance experts evaluate rates, rules and forms produced from the current system.

Determining whether your existing policy admin system is accurate before switching to a new platform is a small upfront investment that pays off significantly down the line. This assessment protects you from unplanned and expensive updates to your new system, after all your data has been input and policies have been issued. In addition, it reduces the likelihood of consumer impact (e.g., confidence), unnecessary financial impact (e.g., interest due) and brand reputational harm.

Get ahead of the issues by partnering with experts

Trusting insurance technology experts like Perr&Knight during the planning phase is the most cost-effective way to manage a successful transition. Not only can we surface and address your current platform’s shortcomings, but we can also outline a plan to correctly configure your new system and ensure your existing data is clean and compliant before migration. That said, if you find yourself facing unexpected difficulties at any time during an implementation, we can always apply our insurance-specific technology expertise to help you get back on track quickly and cost-effectively.

Switching to a new policy admin system will always be complicated but partnering with experts means it doesn’t have to be a headache.

Contact the insurance operations and technology specialists at Perr&Knight today to discuss how we can help you make change more manageable.

Are Your Personal Auto Rates Keeping Up with Soaring Claim Costs?

by Andrew Douglas

In the personal auto insurance industry, the cost of repairing or replacing cars involved in accidents has spiked and continues to rise. These increases appear in insurer claim severity data as double-digit percentage increases in the cost of covering property damage and collision claims. Propelled by persistent supply chain shortages, general inflation, and shifting composition of vehicles under coverage, some of these higher costs may be here to stay.

Insurers should be responsive to these changes or risk inadequate rates to cover future costs. As actuarial consulting partners to some of the nation’s top insurance companies, we have helped many insurers accurately predict future premiums needed to keep up with these rising costs.

Here are some factors influencing higher costs and what to expect in the coming year.

Claim costs have risen dramatically

Property damage coverage and collision coverage costs are tied to the price of vehicles and vehicle parts. The cost of vehicle repairs and replacements has sharply increased, coinciding with pressures on the global supply chain caused by COVID-19, changing consumer demand, and inflationary impacts.

Countrywide data shown in the table below reveals the average cost of a claim for property damage and collision coverages has increased by over 30%. Many areas of the country have experienced more significant spikes. For example, Florida, Georgia, Maryland, and New York all have experienced claim cost increases closer to 40%.

Source: Chart created using data from the Insurance Services Office, Inc. Fourth Quarter 2021 Private Passenger Automobile Fast Track Data Circular AS-PA-2022-013 published on May 12, 2022. Includes copyrighted material of Insurance Services Office, Inc., with its permission.

Safety features drive up costs

New safety-related vehicle features are also raising the price tag for repairs as late-model vehicles feature more crash avoidance technology than ever. True, some of these technologies reduce accident frequency. However, expensive new technologies also elevate repair costs as many of the parts used in these systems are located on the vehicle’s exterior.

For example, the Insurance Institute for Highway Safety (IIHS) April 2019 report showed the average payment per claim for damage to the insured vehicle goes up by $109 for vehicles equipped with the forward collision warning without autobrake.

As the auto industry promotes tech-powered safety features as a selling point, increased associated repair costs are a trend we don’t expect to reverse. According to the IIHS, the percentage of registered vehicles estimated to utilize these systems will increase by over 20 percentage points by 2024.

Shift toward electric vehicles also has an impact

Car buyers’ affinity toward electric vehicles (EVs) will also push severity up. Overall, the number of electric cars on the road in the United States is small, but in some areas like California, EVs make up a significant proportion of new vehicles. In the near term, severity will rise with the expansion of EVs on the road because it takes time to build a robust parts network and shops will need to invest in training to service these new vehicle types.

Additionally, global semiconductor shortages continue to squeeze the supply of microchips in cars, which means low supply and high prices. The dynamics causing parts shortages are likely to persist into 2024 (S&P Global, 2022).

As gas prices rise and the popularity of electric vehicles continues to climb, claims costs may trend upward as well.

Insurers nationwide are scrambling to increase rates

Though most insurers reduced rates and/or returned premiums during the height of the pandemic, insurance companies today are feeling the pressure of rising claim costs, resulting in a mass push to increase rates. Due to this realization, rate increase requests are pouring into Departments of Insurance across the country as shown in the graph below. States like California are experiencing long wait times for rate increases to be approved.

Source: Chart created using data from S&P Global Market Intelligence

The type of support required for personal auto rate filings varies by state. With staffing shortages slowing down the filing review process at Departments of Insurance and inflation putting pressure on the rates charged by insurance companies, it is more important that the submitted filing meets all the state-specific requirements. Improving the time to approval could save a company millions of dollars. Partnering with actuarial consulting experts like Perr&Knight for support can reduce the risk of inaccuracies that can slow the approvals process.

Higher costs are here to stay

Supply chain shortages and inflation, new safety technologies, and EV popularity are driving claims costs up and show no sign of abating any time soon. To keep pace with higher expected loss costs, insurers should proactively keep pace with rate increases. Actuarial consulting partners like the team at Perr&Knight can evaluate rates and rating structures to ensure rate adequacy and determine what actions are needed to promote both short and long-term success.

Contact Perr&Knight today to let our actuarial consulting and state filings experts help you ensure the accuracy of your personal auto rates.

Guidelines for Filing Program Business

by Michael Covert

Insurance carriers have become more and more interested in writing “program” business over the recent years. In addition, many carriers only have a single carrier to work with, at least at the onset. Every carrier writing program business wants to have as much flexibility as possible to continue to add new programs and program administrators. Based on the experience of our actuarial consulting and state filings experts with various Departments of Insurance (“DOIs”) across the majority of lines, we describe below the most efficient way to set up nationwide filings and minimize the possibility of material compliance concerns.

What is program business?

According to the Target Markets Program Administrators Association, Program Business is defined as insurance products targeted to a niche market or class, generally representing a book of similar risks placed with one carrier. The administration of the program is done through Program Specialists, often referred to as program administrators or managing general agents (“MGAs”), who have developed expertise in that market or class. Although administrative responsibilities are negotiated between the Program Specialist and carrier, the responsibilities of the Program Specialist include underwriting selection, binding, issuing, billing, and oftentimes marketing, premium collections, data gathering, and claims management/loss control.

Bureau “Base” Program Filings

For the standard commercial lines, program business typically uses Insurance Services Office (“ISO”) or other rating bureaus for loss cost/rates, rules, and forms, but program business can be more than the standard commercial lines and can span across almost all Property & Casualty lines of business.

Some carriers choose to set up a “Base” program (usually for commercial lines) that any program administrator can use. For example, a Base program, such as commercial general liability, might adopt all the bureau loss costs, rules, and forms. There is no need to make a filing that is specific to a single program administrator or target market/class of business. This gives the program administrator the ability to start writing immediately rather than waiting for program filings to be prepared, submitted, and approved for their specific program.

According to our actuarial consulting experts, the Base program generally has rating flexibilities such as multi-tiering and a schedule rating plan, so the carrier can appropriately price the various markets and classes of business written by the carrier’s program administrators. If there are specific rates and forms that are required for a target market or class of business, the carrier will prepare and submit filings for these program-specific rates and forms. Generally, these are miscellaneous items that can be added on to the Base program and are simpler / quicker from a state filings standpoint compared to one with a complete program.

One of the drawbacks of the Base program filing approach is that changes have the potential to impact all program business. If a carrier is adopting an ISO loss cost change, one of their program administrators may not want to adopt the loss cost because of the impact on their specific niche market. Under this scenario, the carrier may file an exception in the Base program and carve out this specific market by having independent loss cost or rates for the impacted class of business. For the Base program approach, every time the carrier is filing a change to the Base program, they need to assess the impact on all their program business.

Program Business Filings

Rather than have all the program administrators use the same Base program filing, a carrier may elect to file each program separately. If a carrier chooses to also file a Base program, the program business filings are typically underneath the main Base program. This means that eligible risks are written in the program business filings and other risk are written in the Base program. The program business filings and the Base program filing are independent of each other in terms of bureau loss cost, rules, forms and company exceptions. When carriers have program business filings, they generally give the program business filing a special program name, like “Small Contractors Program”, with distinct eligibility guides to distinguish it from other programs the carrier may already have in place.

Under the program business filing approach, new program filings (rates, rules and forms) are needed for each new program administrator and it takes longer to get the program to market. However, our actuarial consulting experts have stated that structuring it this way makes the process much cleaner for rate revisions and program changes as no program filing is connected in any way to another under the same line of business.

Having your program filings connected to the Base program, although it can be done, generally causes issues. First off, many DOIs do not permit references (or links) to another program which makes tracking of these “links”, and lack thereof, difficult from a compliance perspective. In addition, if you make a change to the Base program, it could impact all linked programs which could potentially result in the same drawback mentioned for Base program and the change may not be desired by all program administrators.

Concerns with overlapping programs

Based on the experience of our actuarial consulting experts, multiple states have issues with a single carrier having multiple programs under the same line of business that could potentially offer the same insured different premiums for the exact same coverage. Many times the argument is made that these “programs” are independently run by separate management teams, so there is no insurance offering to the same insured by the same individuals. This argument does not always work and is problematic in California along with some other states. In addition, there are some states, such as California, that take this one step further in that no program can overlap within an entire insurance group, not just the individual carrier. When writing multiple programs for the same line of business under a single carrier, there are typically a few ways to differentiate programs in order to not run into state filing issues, which include the below.

Mutually exclusive underwriting guidelines

You are permitted to have multiples programs in all states if the underwriting guidelines are mutually exclusive, meaning no exposure overlaps between any approved program. For example, you could have a long haul trucking commercial auto program and a public auto commercial program, or from a personal lines standpoint, you could have one program that requires a usage-based insurance (“UBI”) device connected to the vehicle that tracks mileage, speed, breaking, etc. which impacts the driver’s premium and a regular program that does not have a UBI device requirement.

Material mandatory coverage differences

Multiple programs with similar exposures may be allowed to the extent that the programs have material mandatory coverage differences. For example, you could have an HO-5 (Comprehensive Form) homeowners program and an HO-3 (Special Form) homeowners program, since an HO-5 program is meant to be more expensive because the policy form is much broader than the HO-3 policy form. Issues can arise if the HO-5 premium is lower than HO-3 for the same risk. Additionally, if an applicant is eligible for both programs, the carrier must make both programs available to the applicant.

Different Distribution channels

Carriers may use distribution channels to differentiate programs, which include commission-based programs written by independent or captive agents and direct programs, with no commission, which are often sold on the internet.

Multiple Carriers

If an insurance group has more than one admitted carrier, the same, or similar programs can be filed under each carrier with none of the above issues occurring, except in a few states, based on our state filings experience. As was mentioned above, there are some states that look at the entire insurance group, not just the carrier.

Workers Compensation Issues

This line of business is different than other lines. In most states, due to statutory or other requirements, carriers may only have one program and must offer the same rates to everyone for standard (guaranteed cost) business. Therefore, a carrier that might have multiple commercial auto programs under the same carrier, can only have one program for workers compensation. In some jurisdictions, carriers can file to enhance the bureau rating structure, vary the rates offered within their single program, and individually rate certain qualifying risks.

Do you need guidance on maximizing the number of programs you can write under a single carrier in your personal or commercial lines rating plans? Our actuarial consulting and state filings experts at Perr&Knight are here to help.

Travel Insurance: A Changed Landscape

by Crystal London

The travel landscape has shifted dramatically over the past two years. From travel disruptions resulting from coronavirus variants to the recent surge in gas prices to the abrupt decline in both travel insurance sales and claims, it’s been a wild ride for travelers and insurance companies alike.

Here’s what has changed in the travel market over the last two years, how these changes have influenced today’s travel insurance product development, and what we expect to see moving forward.

Flights as a measure of travel insurance health

Looking specifically at the number of flight bookings is the biggest indicator of what’s happening in the travel market today. Flights are a key indicator because historically, travel insurance was purchased more often when a flight was involved.

In 2019, we saw 2.5 million travelers a day pass through TSA. The initial landfall of Covid-19 in March 2020 threw the market into near-instant havoc, experiencing a sharp decline seemingly overnight. Since then, the travel industry has shown great strides in rebounding.

What’s important about today’s counts is the behavior or seasonality characteristics noted at the end of the year (“holiday season”) that mimic pre-pandemic travel, except at a lower level. However, Americans’ appetite for travel is gaining momentum quickly, resulting in numbers that are nearly back to 2019 levels in two short years.

We are also seeing similar travel behavior from 2019 mimicked in the first four months of 2022—further proof that the market has a strong foothold on the path back to “normalcy.”

Flights and cruises are on the rebound

Beginning in 2020, the largest dip in travel behavior was due to the onset of Covid-19 first reaching the United States. Since that initial bottoming out, the market has made increasing trends upward. Domestic travel has started to gain momentum and is increasing at a rapid pace. As of March 2022, U.S. travel is only roughly 5% below 2019 levels, which is heavily weighted toward domestic travel. International travel experienced a more sluggish rebound in 2020 but is strengthening at nearly the same rate as domestic travel in 2021.

The cruising market took a near-instant nosedive once the outbreak of Covid-19 reached the United States. Today, cruising travel is still less than 50% of 2019 levels. During 2021, the cruising market has shown gradual (but slow) growth. Younger travelers are wary of the potential for virus transmission in enclosed spaces and are therefore not eager to board a ship anytime soon. However, older travelers appear to have a high likelihood to start cruising again soon. This is especially good news since the last of the baby boomers are reaching retirement age, meaning they have ample time and money for travel.

More travelers are hitting the road

Increased road travel is altering insurance product development to accommodate travelers’ changing needs. Travel by car and RV is having its day in the sun. According to the U.S. Travel Association, RV or car trips jumped in popularity in 2020 and 2021— a trend that appears to be continuing in 2022. Great news for the industry: 85% of Americans are expecting to travel this summer. Roughly 80% plan to travel in their personal or rental vehicles and 46% plan to fly.

Today’s travel insurance product offerings have been modified to focus on needs specific to road travelers, including medical coverage and rental car collision, as opposed to air travel-centric products like trip cancellation/interruption, missed flights, or lost baggage.

That said, 59% of American travelers believe travel prices are too high right now which has prevented them from traveling in the past month. The travel price index is 16% higher than 2019 levels, mostly due to rising fuel costs. However, this statistic does not indicate declines in future outlooks.

From pandemic to endemic: how coverage is changing

Many carriers considered pandemics like Covid-19 to be foreseeable events, so travel products have historically excluded events such as pandemics and epidemics. As a result, there was immense confusion among policyholders and insurance companies regarding specific coverages and exclusions for insureds who purchased travel insurance both before and after the initial outbreak of the virus.

That said, carriers continued to cover trip cancellation and trip interruption as well as medical expenses and emergency evacuation if an insured became ill, even due to the coronavirus.

As the virus moves from pandemic (actively spreading across borders) to endemic (a constant presence), insurance carriers are adjusting their insurance product development to reflect the “new normal” in the travel industry.

CFAR/IFAR

Policies generally do not cover cancellations or interruptions based on fear of contracting the virus, which is why “cancel for any reason” (CFAR) became such a hot topic. CFAR or IFAR (interruption for any reason) covers the cancellation or interruption of a trip under any circumstance. Even if the insured simply doesn’t feel like going on the trip anymore. Insureds who purchased this “any reason” benefit are covered and could recoup at least a portion of their trip. These benefits have since become a very sought-after benefit by insureds seeking peace of mind, which is especially relevant in case a new Covid-19 variant is detected.

Carriers are also reassessing pandemic and epidemic exclusions, opting to include them as covered perils in their policies. This is especially important as insureds start to take a closer look at their policies to determine what is covered and what isn’t.

Government-issued travel advisories

One of the coverages also being called into question today is trip cancellation or interruption due to government restrictions based on the U.S Department of State travel advisories. While cancellation or interruption may not cover the pandemic in general, cancellation or interruption because of government restrictions or travel advisories of level 4 (“Do not travel”) that could potentially include Covid-19 or various other reasons may be covered if the policy includes government restrictions as a listed peril in the policy. This may also include the CDC travel risk assessment of level 3 (“high risk”) which was recently revised and unveiled. Otherwise, government restrictions would not be covered. However, CFAR or IFAR would cover these scenarios.

Increased interest in travel insurance

Fortunately, the United States is essentially “back to normal” for domestic travel within the 50 states with no mandatory pre-arrival testing or quarantines. The federal mask mandate on commercial transit has also been discontinued. Vaccine and mask mandates are now based on state and city ordinances. The number of countries without travel restrictions also continues to climb as 2022 rolls on, which means the government restriction peril may no longer be as valuable as it once was.

A survey from the Automobile Club of America (AAA) found that one-third of U.S. travelers said they are more likely to buy travel insurance for their trips through the end of 2022, specifically because of the pandemic. 69% of travelers said, “the ability to cancel a trip and get a refund” is most important to them when considering travel insurance for an upcoming trip.

As more people become aware of the existence and usefulness of travel insurance, sales have seen a 10% to 20% jump over 2019 numbers with spikes as high as 53% increase over 2019 following news of the Omicron breakout. This increase in sales has resulted in a better claims experience than previously seen since anti-selection is being hedged against broader market sales.

The average frequency of 2021 claims based on internal data was less than half that in 2019. As a percent of total claims, the initial spike of CFAR claims has dampened but continues to be a highly utilized claim which we expect to continue into 2022, given consumers’ new knowledge about its value.

A new landscape

Covid-19 is here to stay. The initial fear of the virus is winding down, but the industry will continue to see spikes and dips as each new variant emerges. Travelers and insurers must learn to live with this new landscape and respond accordingly. Insurance companies must embrace this new landscape and take these shifts into account during their product development.

Another big takeaway for travel insurers is their ability to monitor claims. Claims submitted under CFAR should be categorized to determine those that are really for Covid-19 but may be disguised as something else. Tracking Covid-specific claims will help do just that. Likewise, more insurers have options specific to pandemic coverage and are providing coverage as its own benefit (trip cancellation, trip interruption, medical expense, and evacuations).

As consumers begin to feel more confident in their return to travel, the goal is to provide equal comfort in their protections through travel insurance.

Contact Perr&Knight and let our experienced actuaries and product design consultants help you develop insurance products that match today’s market.

Get Help from Perr&Knight’s Experts

by Perr&Knight

As we head into the second half of 2022 and the summer months filled with employees taking vacations, you may find that you have a lot of work to get done by year-end and not enough experienced people to get it all done.

If you are like many of the insurance entities we work with, you likely have an abundance of work to kick off new projects and introduce innovative product offerings, but not enough internal resources to tackle these projects. The experts at Perr&Knight can help.

Due to inflationary pressures, you may find it necessary to make rate changes on some of your insurance programs. Perr&Knight can help.

If you need to outsource additional work, our team has the capacity and expertise to take it on. We can help with any phase of actuarial, product development or state filings work.